This paper provides an empirical analysis of the role of financial development and financial
integration in the growth dynamics of transition countries. We focus on the role of financial
integration in determining the impact of financial development on growth, distinguishing “normal
times” from periods of financial crises. In addition to confirming the significant positive effect on
growth exerted by financial development and financial integration, our estimates show that a higher
degree of financial openness tends to reduce the contractionary effect of financial crises, by
cushioning the effect on the domestic supply of credit. Consequently, the high reliance on international
capital flows by transition countries does not necessarily increase their financial fragility. This implies
that financial protectionism is a self-defeating policy, at least for transition countries.